Industrials businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But they are at the whim of volatile macroeconomic factors that influence capital spending (like interest rates), and the market seems convinced that demand will slow. Due to this bearish outlook, the industry has tumbled by 1.7% over the past six months. This drop was disappointing since the S&P 500 climbed 5.1%.

A cautious approach is imperative when dabbling in these companies as the losers can be left for dead when the cycle naturally turns and the winners consolidate. Keeping that in mind, here are three industrials stocks best left ignored.

Hertz (HTZ)

Market Cap: $1.28 billion

Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.

Why Do We Steer Clear of HTZ?

1. Underwhelming unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Waning returns on capital imply its previous profit engines are losing steam
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Hertz’s stock price of $4.16 implies a valuation ratio of 3.4x forward EV-to-EBITDA. To fully understand why you should be careful with HTZ, check out our full research report (it’s free).

Markforged (MKFG)

Market Cap: $52.79 million

Beginning as a start-up at SolidWorks World–an annual design and engineering conference, Markforged (NYSE:MKFG) offers 3D printers and softwares to manufacturers of various industries.

Why Does MKFG Fall Short?

1. Sales tumbled by 5.8% annually over the last two years, showing market trends are working against its favor during this cycle
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 56.1 percentage points
3. Free cash flow margin shrank by 38.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Markforged is trading at $2.56 per share, or 0.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MKFG.

Scorpio Tankers (STNG)

Market Cap: $1.84 billion

Operating one of the youngest fleets in the industry, Scorpio Tankers (NYSE: STNG) is an international provider of marine transportation services, specializing in the shipment of refined petroleum.

Why Does STNG Give Us Pause?

1. Performance surrounding its total vessels has lagged its peers
2. Projected sales decline of 22.9% over the next 12 months indicates demand will continue deteriorating
3. Earnings per share have dipped by 5.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term

At $39.41 per share, Scorpio Tankers trades at 5.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why STNG doesn’t pass our bar.

Stocks We Like More

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